Are the days of high interest rates on fixed-term deposits over?

Are the days of high interest rates on fixed-term deposits over?

From: November 15, 2023, 3:30 pm

After the long period of low interest rates, many savers are pleased that there is once again significant interest on current and term deposit accounts. But in recent days some banks have reduced their offers again.

Andreas Braun

For years, interest rates on savings accounts, daily deposits and fixed-term deposits could not be achieved in German and European banks. The European Central Bank’s (ECB) zero interest rate policy ensured this.

Since last year, the ECB has sharply increased key interest rates in several stages. This meant that interest rates on loans to house builders, for example, rose sharply, but for the first time savers received a corresponding interest rate on their liquid financial assets. In September this year, the most important key interest rate in the euro area finally rose to 4.5 percent.

Therefore, many German and international banks attracted savers with generous interest rates. Four or even 4.5 percent was recently available for one-year fixed-term deposits, as comparison portals such as Biallo, Check24 and Verivox show.

Klarna announced a turnaround?

In recent days, however, the end of interest rate increases on savings deposits seems to have become evident, and what’s more: the Swedish payment service provider Klarna, which is also heavily represented in the deposit business in Germany, has increased the interest rate for fixed-term deposits with a term of one year from 4.12 to 3.84 percent below – and therefore below the four percent mark. Creditplus Bank, which belongs to the large French bank Credit Agricole, also slightly reduced its one-year interest rate, from 3.8 to 3.7 percent.

Harbingers of a trend reversal in the interest rate market? Ralph Wefer of comparison portal Verivox doesn’t see it that way: “It’s not uncommon for individual banks to adjust their interest rates from time to time,” Wefer said in an interview. In many cases, banks also specifically used the deposit business to improve their financial situation.

In recent weeks, however, there has been a stabilization in interest rate developments for fixed-term deposits, “but it is likely that the interest rates on offer will stabilize at this level for the time being. Recently, we have even seen new highs in the ‘maximum interest rate range’.”

Up to 4.5% for one-year fixed term deposits

In fact, several European banks offer interest rates on fixed-term deposits with twelve-month terms well above the four percent mark. The current leader in the Verivox ranking is Banco BNI de Portugal with 4.50 percent. Volkswagen Financial Services, a subsidiary of the VW Group, is also a German supplier offering just over four percent a year at 4.02 percent.

The best one-year interest rates on the Biallo consumer portal are also well above the round mark. If you want to take advantage of an offer from Germany, you can even get 4.30% for twelve months from Isbank, the German subsidiary of a Turkish institute. Biallo expert Sebastian Schick also does not currently see a trend reversal in the market. The average Biallo index of fixed-term deposits for one year and an investment value of 5,000 euros is currently 2.63 percent. The 14-year high of 2.66 percent was reached on November 8 at 2.66 percent.

Interest Rate Pause Is Not a Change in Interest Rates

As long as key interest rates remained at their levels, there would be corresponding offers for interest savers, “this is also proven by the historical data we collected for the ECB’s biggest interest rate break to date, from mid-2007 to mid-2008,” said Schick in an interview “During this period, savings interest rates increased by an average of around half a percentage point, despite the ECB’s one-year interest rate break.”

Only when the European Central Bank turns the interest rate screw and starts cutting interest rates will overnight and fixed-term deposits be expected to return to generating lower returns. However, there are currently no signs of this.

Take a look at long term

Biallo expert Schick recommends that “savers should take a look at fixed-term deposits with very long maturities” now, but at the latest in case interest rates spiral downward again. Individual banks such as PBB Direkt (Deutsche Pfandbriefbank) or the Austrian Kommunalkredit Invest offer ten-year fixed-term deposits at 4.25 or 4.50 percent per year. “In some cases, the effects of compound interest can even be utilized with long-term fixed-term deposits if annual distributions can continue to earn interest,” says Schick.

Verivox investment expert Wefer currently believes that a strategy with two-year fixed deposit terms makes sense. “Ideally, you should take out two fixed-term deposits separated by one year,” says Wefer. This means you can take advantage of the higher interest rates on longer terms and still have one of two investments returned every year, so savers can react flexibly to changing market conditions when reinvesting.

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